5 reasons why rupee recovery may not last

5 reasons why rupee recovery may not last

One of the primary reasons for the recovery in the equity markets was stability and recovery in the currency market. Rupee has recovered nearly 11% since RBI governor Raghuram Rajan introduced measures to stem the slide.

The currency also received help from Federal Reserve chief Ben Bernanke when he announced postponing of the tapering (its liquidity infusion) program.

The rupee was within sniffing distance of 70 but has since recovered and currently trades at 61.50. The on-going shutdown in the US has also raised hopes that tapering would be postponed further, giving markets a leg-up.

So are we out of the woods or is this just a pause before the slide continues.

It is clear that the measures taken by the central banker and the events that have unfolded are all time-bound. What the rupee has got is only some breathing time.

Here are five reasons why the rupee will continue on its ride downwards. Click on NEXT...

5 reasons why rupee recovery may not last

The main reason for the recovery of the rupee was introduction of a ‘subsidised’ FCNR (B) deposit scheme and a bank borrowing limit that was increased to 100 per cent.

These were time bound instruments which expire in November 2013. A smart influx of dollars due to these measures is responsible for bringing some sanity in the currency market. But what will save the rupee post this expiry date.

5 reasons why rupee recovery may not last

A compromise before that date would mean a firmer dollar as compared to other currencies, including the rupee. If no compromise is reached by that date, a defaulting US can set off a tsunami which will make the 2008 crisis a walk in the park.